Energy traders face extreme oil volatility after Gulf disruption

The Guardian reports that energy traders are struggling to price oil in a market driven less by supply spreadsheets than by war headlines, after the US-Israel conflict with Iran disrupted flows through the Gulf and raised the prospect of a Strait of Hormuz shutdown. Brent crude has seen some of its sharpest daily swings on record, and physical cargoes—not just paper futures—are being rerouted mid-voyage, with tankers U‑turning in the Atlantic and liquefied natural gas cargoes switching destination from Europe to Asia.

The mechanics of this stress are visible in the physical market. Traders who arrange real shipments have to commit to routes, delivery windows, and financing while insurance terms can change in hours. When war-risk premiums spike, the bottleneck becomes credit and cover rather than the number of barrels in the ground. The Guardian describes the logistical scramble among major commodity houses headquartered in Switzerland—Vitol, Trafigura, Glencore, Gunvor and Mercuria—trying to choreograph supply rerouting. These firms can profit handsomely when dislocation creates arbitrage, but they also carry the risk of being stuck with cargoes that cannot be delivered, financed, or insured at the price assumed when the deal was signed.

The scale of what is at stake is not limited to crude. The Gulf supplies roughly a fifth of global oil and gas, a quarter of seaborne jet fuel, and almost half of global urea used for fertiliser, according to the Guardian. That mix matters because it turns an energy shock into an input shock for airlines and agriculture. The same disruption that lifts crude can also tighten fertiliser markets, raising costs for the next planting season and pushing food inflation into countries that are already paying more for shipping and currency hedges.

The distributional story is also familiar. In the last major energy shock, traders at the biggest houses were paid extraordinary sums—Vitol’s workforce averaged roughly three quarters of a million dollars in salary and bonuses in 2022, the Guardian notes—while households paid through higher bills and governments paid through subsidies. A war-driven price spike tends to revive the same political reflex: cap prices for consumers, backstop insurers, and socialise risk that private markets are trying to price.

For Europe, the most immediate transmission channel is cargo diversion. If Asia pays a premium for LNG and refined products, shipments can be pulled away from European terminals even after they have left port, tightening supply without any formal embargo. The market signal is not a queue at a petrol station; it is a bank asking for more margin and an insurer rewriting a clause.

In London’s Square Mile, the Guardian quotes traders describing the market as “all fear and headlines.” The tankers changing course at sea are the part of the story that does not fit on a trading screen.